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Verizon Wireless has agreed to sell some spectrum to T-Mobile USA and swap
other spectrum, in a continuing effort to obtain regulatory approval for larger
spectrum deals that it has pending with the nation's largest cable operators and
another wireless carrier.

The Verizon agreement with T-Mobile, announced June 25, is contingent on
approval by the Federal Communications Commission and the Department of Justice
of three of Verizon's other pending transactions to buy spectrum from a
consortium comprising Comcast Corp., Time Warner Cable, Bright House Networks;
Cox Communications; and Leap Wireless for a total of about $4 billion.

Those deals have all met with resistance from public-interest groups and
Verizon's smaller competitors, including T-Mobile, which claim that they would
leave too much spectrum in the hands of Verizon, the No. 1 carrier.

But in reaching this new agreement, Verizon has effectively silenced
T-Mobile, which, just months removed from its failed merger with AT&T Inc.,
has been one of the most outspoken critics of the deals. T-Mobile immediately
sent a letter to the FCC withdrawing its previous opposition to Verizon's
deals.

“The agreement with T-Mobile is further evidence of the importance of a
secondary spectrum market to give companies the flexibility to exchange or
acquire spectrum to meet customers' growing demands for wireless data services,”
said Dan Mead, president and CEO of Verizon Wireless, in a press statement June
25.

Financial Terms Not Disclosed.

Neither Verizon nor T-Mobile disclosed many details of their sale/swap.

The companies did note, however, that the deal will involve Advanced Wireless
Services, or AWS, spectrum, some of which will come from the spectrum that
Verizon would acquire from the cable operators.

Under their agreement, both companies also would receive “additional spectrum
depth” in specific markets to meet LTE (long term evolution) capacity needs and
enable LTE expansion.

For T-Mobile, the spectrum would cover 218 market areas, and help the No. 4
wireless carrier bolster spectrum capacity in 15 of the top 25 markets in the
United States.

“This is good for T-Mobile and good for consumers because it will enable
T-Mobile to compete even more vigorously with other wireless carriers,” T-Mobile
USA CEO Philipp Humm said in a separate statement June 25.

Verizon Betting Big on 4G Future.

As for the biggest deal at issue, the spectrum licenses that Verizon is
seeking to acquire from Comcast, Time Warner, Bright House, and Cox
Communications were originally purchased at auction in 2006 for $2.4 billion by
joint venture of the cable operators and Sprint Nextel Corp. known as
SpectrumCo.

The venture bought the spectrum with plans to start a wireless business, but
then never used it.

Sprint Nextel abandoned SpectrumCo in 2007. Last November, Cox, citing a
“lack of wireless scale necessary to compete in the marketplace” did the same.
(Sprint's spectrum is not included in the sale. Verizon has one agreement in
place with Comcast, Time Warner, and Bright House; and a separate one with
Cox.)

In defending the deals, Verizon has argued that the additional AWS spectrum
nationwide will help the company avoid what has been termed “spectrum exhaust,”
especially in suburban and urban areas. Since Apple made the iPhone available on
Verizon's network, Verizon has experienced increasing network congestion similar
to that witnessed by AT&T, the first wireless carrier to offer the
iPhone.

Perhaps most important for Verizon, the cable operators' spectrum will allow
the company to greatly expand its 4G network in both the AWS band and the 700
MHz band, in which the company currently occupies a contiguous, nationwide
footprint. Even without Comcast's, Time Warner's, Bright House's, and Cox's
spectrum, Verizon already has 13 AWS licenses in the Northeast, Southeast, Great
Lakes, Mississippi Valley, and Louisiana. In all, from the cable operators,
Verizon would acquire a total of 122 nationwide AWS spectrum licenses.

In that same 2006 auction, T-Mobile was arguably the most aggressive in
acquiring licenses in the northeastern United States. The cable operators'
spectrum is not only all in the AWS band, but covers 259 million people
nationwide.

Not coincidentally, T-Mobile had been lobbying the FCC to reject Verizon's
proposed spectrum purchase from the cable operators.

Among other things, the company had argued that Verizon already has
significantly more spectrum “free and clear” for the deployment of
fourth-generation, long-term evolution (4G LTE) mobile broadband services than
any of the other three nationwide wireless carriers--AT&T, Sprint Nextel
Corp., and T-Mobile--combined. If the proposed transaction were completed,
Verizon would control an average of 63 megahertz of spectrum for LTE, while
AT&T, Sprint, and T-Mobile together would occupy only 50 MHz, T-Mobile had
said.

Public Interest Groups Still Wary.

The public-interest groups still have concerns, however.

As part of Verizon-cable deals, Comcast, Time Warner, Cox, and Bright House
cable services will all be sold through Verizon Wireless stores in those
companies' service territories, while the cable providers will cross-promote
Verizon Wireless services through their call centers and websites. After four
years, the cable carriers will have the option of selling Verizon Wireless
service under their own corporate names, creating a true “quadruple play” of
wireless, cable TV, landline phone, and home internet services. This, in effect,
allows the cable operators to maintain a stake in the wireless business.

At the same time, the move has raised questions about whether Verizon's FiOS
TV service will be a serious competitor to cable.

“The proposed license transfer from Verizon Wireless to T-Mobile does nothing
to address the ability of Verizon and its cable partners to use its marketing
and research agreements to develop a patent portfolio capable of bringing the
mobile patent wars from handsets to online video,” said Harold Feld, senior vice
president of the public-interest group Public Knowledge, in a statement. “ ...
The parties cannot justify creating a web of anti-competitive agreements and
tools for future anti-competitive collusion by divesting a handful of
licenses.”

Free Press Policy Adviser Joel Kelsey added: “The evidence presented in
Verizon's deal with [the cable companies] definitively proves that Verizon is
badly overstating its need for the cable companies' spectrum. We will reserve
our judgment on the Verizon-T-Mobile deal until more details are disclosed, but
our goal all along has been to ensure that consumers have access to more
competitive wireless market and that spectrum policy is used to achieve, not
thwart that goal.”

The Alliance for Broadband Competition, which was formed to oppose Verizon's
spectrum deals and which counts T-Mobile as a member, said the matter is really
about a “far-reaching non-compete agreement between two huge competitors.”

“While it's nice that Verizon will cede a small portion of its vast spectrum
holdings to T-Mobile, that does nothing to mitigate the fact that Verizon and
cable want to stop competing, stop investing, and stop innovating to the great
detriment of consumers and the American economy,” the alliance said in a
statement. “Our position remains the same: we urge the DOJ and FCC to continue
their thorough examination of these agreements to ensure a competitive
telecommunications industry.”

The announcement June 25 marks the second attempt by Verizon to frame
discussions about possible divestitures of assets as the FCC and the Justice
Department review its deals with the cable operators.

In April, Verizon announced an “open sale” of spectrum licenses in the 700
MHz band, but T-Mobile said it wasn't interested.

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